206C: Explore Sections 206C(1F), (1G), (1H)
Updated: Jul 1
Understanding the intricacies of the Income Tax Act is necessary for compliance and optimization of tax liability. Section 206C of the Act contains provisions pertaining to tax collected at source (TCS) on certain transactions. In the recent past, amendments have introduced separate subsections 206C(1F), 206C(1G) and 206C(1H) in respect of various transactions, thereby expanding the scope of TCS. This article explores the subsections of Section 206C, outlining exactly what they require and implications for people and businesses involved in specific transactions.
Table of Content
Introduction to Section 206C of Income Tax Act
Section 206C of the Income Tax Act is related to the collection of tax at source, or TCS. Prior to amendments, sellers were liable under this provision to collect tax from buyers engaged in selling certain specified goods and services. This TCS provision is introduced to prevent tax avoidance and widen the base of tax collection by collecting the same at the point of transaction rather than relying on self-assessment by the taxpayer.
Key Aspects of Section 206C
Scope and Applicability: Section 206C was enacted to levy TCS on trading of scrap, minerals, and forest produce. It has undergone many changes through the years and its scope has increased to include a wide range of transactions, specially those pertaining to: sale of motor vehicles of more than a specified value; overseas tour packages; and remittances under the Liberalised Remittance Scheme (LRS).
Compliance Requirements: Every seller liable to collect tax shall obtain a Tax Collection Account Number (TAN), quote the same in all TCS-related documents, and deposit collected tax to the credit of the central government. Compliance under TCS includes quarterly returns showing tax collected and deposited.
Impact on Buyers: The buyers from whom the tax is collected at source would be eligible to claim credit for the amount of TCS against their total tax liability while filing their income tax returns.
Importance of Section 206C
Improved Compliance: Section 206C makes certain the collection of tax at the very transaction stage, reducing cases of tax evasion.
Revenue Security: TCS serves as a mechanism to secure some revenue for the government at an early stage. It also helps to improve cash flow management and fiscal planning.
Broadening the Tax Base: It brings more transactions within the tax net, particularly in sectors in which levels of compliance have traditionally been low.
Ease of Administration: With TCS, tracking transactions is easier on part of the tax authorities than solely depending on the self declared incomes of different people, thereby making the tax administration easier.
Section 206C(1F): Sale of Motor Vehicles
Section 206C(1F) of the Income Tax Act specifically relates to TCS on the sale of motor vehicles. This subsection was widened to secure a certain part of the tax liabilities accruing from such high-value transactions at the source itself, which improved the compliance and efficiency in collection.
Section 206C(1F) is for those sellers who are into the business of selling motor vehicles to retail consumers. If the sale consideration for the motor vehicle sale is more than INR 10 lakh, the seller shall be liable to collect the tax at source at the time of sale. This is applicable to all kinds of motor vehicles, including cars, bikes, and other automobiles that attract this tax.
The threshold for the applicability of TCS under Section 206C(1F) is in respect of sales exceeding INR 10 lakhs. The rate prescribed for TCS under this section is 1% of the sale value. This rate has been made uniform for all types of motor vehicles that fall within the threshold specified hereinafter so as to have a uniform approach for tax collection from high-value vehicle transactions.
Section 206C(1G): Overseas Remittance and Travel
Section 206C(1G) of the Income Tax Act deals with the TCS on foreign remittances and the sale of overseas tour packages. This is introduced with the aim of monitoring and collecting taxes from major financial transactions involving foreign exchange.
Description and Applicability:
This provision relates to:
Money remitted abroad under the Liberalised Remittance Scheme (LRS) of the RBI.
Payment for purchase of overseas tour package.
The tax will be collected at the point of transaction by the authorized dealers or sellers of such packages.
Important Amendment by Finance Act, 2023:
The Finance Act, 2023, has made considerable changes in the TCS structure under Section 206C(1G), wherein the scope of tax collection at a high value was introduced with regard to transactions connected with foreign exchange and increasing compliance measures. These changes include:
Increased TCS Rate: The rate of TCS was increased from 5% to 20%. This higher rate is envisaged to ensure more substantial taxes collected upfront on larger transactions, particularly against the backdrop of surging remittances.
Introduction of Threshold Limit: A new threshold limit introduction of INR 7 lakhs was done, now TCS under this section is not applicable on the amount which a buyer spends up to INR 7 lakhs during one financial year in India. It simply means that the first INR 7 lakhs remitted abroad or spent for overseas travel are not subject to TCS under this section.
Delay in Implementation of Amendment:
A press release dated 28th June 2023 delayed the implementation of increased rate of TCS to 1st October 2023. The TCS rate remains at 5% for transactions above INR 7 lakh in a financial year till then. From 1st October onwards, payment over and above this threshold shall bear a TCS at the rate of 20%.
Section 206C(1H): Sale of Goods
Section 206C(1H) applies to sellers whose total sales, gross receipts, or turnover from the business carried on by them exceed INR 10 crores during the financial year immediately preceding the financial year in which the sale is made. TCS under this section is applicable at the time when the consideration received or receivable from a buyer for the sale of any goods exceeds INR 50 lakhs in the financial year.
The rate at which TCS is to be collected under section 206C(1H) is 0.1% on the consideration for the sale consideration in respect of which such consideration exceeds INR 50 lakhs. For the purpose of the threshold, INR 50 lakhs is the consideration for the total sales made to each buyer, individually. The TCS has to be collected only on the consideration that one receives in excess of INR 50 lakh. Thus, for instance, where a seller receives INR 60 lakhs paid by the buyer against sale of goods, the TCS would be levied upon the sum of INR 10 lakhs (that is, INR 60 lakhs less the threshold of INR 50 lakhs).
Section 206C: Compliance Requirements
Compliance in the provisions of the TCS under the Income Tax Act is very necessary for entities engaged in transactions covered in these sections. Here is a detailed break-up of compliance and documentation to be maintained for every sub-section:
Section 206C(1F): Sale of Motor Vehicles
TCS to be Collected: 1% of TCS on sale of motor vehicles where the selling consideration exceeds INR 10 lakhs.
Documentation: Maintain a record of every transaction stating the buyer's information, vehicle information, and invoice amount.
Reporting: File quarterly returns of TCS with Form 27EQ. Furnish TCS certificate to each buyer with Form 27D within fifteen days from the due date of furnishing the statement of tax collected at source.
Section 206C(1G): Overseas Remittance and Travel
TCS Collection: TCS to be collected at 5% on amounts above INR 7 lakhs for overseas remittances under LRS and for overseas tour package. From 1st October 2023 onwards, it shall be 20% on the amount above INR 7 lakhs.
Documentation: Details of PAN/Aadhaar of the remitter or traveler, nature of remittance or tour package, and amount on which TCS is levied need to be obtained and maintained.
Reporting: The return filing in Form 27EQ shall be quarterly and issuance of TCS certificate in Form 27D shall be mandatory.
Section 206C(1H): Sale of goods
TCS Collection: The dealer has to collect 0.1% TCS from the value of sale of goods transactions more than INR 50 lakhs in a financial year.
Documentation: All sale transactions with buyer's details and amount, and particularly transactions crossing the specified threshold, should be properly recorded.
Reporting: Like in other provisions, file quarterly returns of TCS through Form 27EQ and issue TCS certificates to the buyers through Form 27D.
FAQ
Q1. What is the TCS rate applicable under Section 206C(1F)?
The rate prescribed under Section 206C(1F) is 1% on the sale of motor vehicles if the value of the same is in excess of INR 10 lakhs.
Q2. Does TCS apply to the sale of all vehicles?
No, TCS under Section 206C(1F) applies only if the sale value is more than INR 10 lakhs.
Q3. Who is required to collect TCS on sale of vehicles?
TCS is to be collected from the buyer by the seller or dealer of the motor vehicle, if its sale value exceeds the specified limit.
Q4. How does the TCS apply to overseas remittances under Section 206C(1G)?
TCS at the rate of 5% on an amount in excess of INR 7 lakhs in a financial year under the Liberalised Remittance Scheme (LRS) would be applied. However, from 1st October onwards, payment over and above INR 7 lakhs shall bear a TCS at the rate of 20%.
Q5. What are the implications of TCS on Overseas tour packages?
TCS shall be collected at the rate of 5% on the amount in excess of INR 7 lakhs spent on purchasing overseas tour packages. Now, this rate has been increased to 20% w.e.f. October 2023.
Q6. Whether TCS on overseas travel covers expenditure on airfare, hotels, and so on?
Yes. If such services form part of an overseas tour package, then TCS shall be applicable on the amount in excess of INR 7 lakh threshold.
Q7. What is the chargeability event for TCS under Section 206C(1H)?
Under Section 206C(1H), TCS is triggered when the total value of goods sold to any buyer exceeds INR 50 lakhs in any financial year. Collection of TCS at the rate of 0.1% is on that amount of sales which is above threshold.
Q8. Does Section 206C(lH) cover all kinds or categories of goods?
It covers most goods except a few which are exempt, either specifically from its ambit or are otherwise subject to the TCS under other specific provisions of Section 206C.
Q9. Is TCS under Section 206C(1H) applicable on each transaction?
TCS shall be levied only on the amount by which the payment in a financial year exceeds INR 50 lakhs, calculated cumulatively for all transactions with a particular purchaser.
Q10. What is the reporting requirement for TCS collected by the seller under these provisions?
Sellers are required to report TCS through quarterly TCS returns in Form 27EQ. Over and above this, the seller has to furnish TCS certificates to buyers in Form 27D within fifteen days from the due date of filing the quarterly return.
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